SouthGobi not target of graft probe; shares rebound

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SouthGobi Resources shares rebounded 5.9 per cent yesterday after falling 13 per cent on Tuesday on worries it is being investigated by Mongolia's graft-busters.

The firm said it was told the probe was aimed at a third party.

SouthGobi admitted sentiment was also affected by news that a bill requiring 51 per cent Mongolian ownership of strategic assets had received its first reading in parliament.

According to laws passed in 2009, the state can acquire up to 34 per cent of a private mining project deemed 'of strategic importance'. In cases where the state has financed some of the exploration, the government can acquire up to 50 per cent. SouthGobi's share price closed at HK$48.70. The coal producer has seen its share price fall 45 per cent in the past year on the back of weaker coal prices and demand in China.

The company said yesterday the Anti-Corruption Agency of Mongolia had formally requested information from the offices of SouthGobi Sands, a wholly owned unit. 'SouthGobi has previously been advised this is in connection with an investigation into a third party and has no reason to believe SouthGobi Sands is itself the subject of any investigation,' it said. 'SouthGobi has co-operated fully.'

A research note by Mongolian brokerage Frontier Securities quoted a report on Mongolian web portal news.mn that D. Batkhuyag, former chairman of the Mineral Resources Authority of Mongolia, had been arrested in connection with alleged 'licence speculation' and authorities were seeking assistance from SouthGobi Sands in their investigation.

Meanwhile, the Mongolian parliament is discussing a bill to restrict foreign investment in the 'strategically significant' mining sector.

The bill was proposed after Aluminum Corporation of China (Chalco) made a bid last month, since suspended pending approval, for up to 60 per cent of SouthGobi Resources.

Some lawmakers want to tighten scrutiny of transfers of ownership of mineral assets involving foreign investors, particularly those in China.

Historically, Mongolia had closer economic and political ties with Russia, and some of its politicians mistrust China, which is now the main consumer of its mineral exports.

Two weeks after Chalco's offer was made public, the Mineral Resources Authority announced it would suspend licences for SouthGobi Sands to conduct exploration and mining, although SouthGobi said at the time it had not received any official notification.